Should Lemon Tree Hotels Attempt to Replicate Its Inclusion-Based Human Resources Strategy in the U.S

Should Lemon Tree Hotels Attempt to Replicate Its Inclusion-based Human Resources Strategy in the U.S. Market? David Wernick Florida International University, Miami, Florida, USA [email protected] Abstract: This teaching case examines the question of whether Lemon Tree Hotels, India’s leading midscale hotel operator, should attempt to replicate its highly successful, inclusion-based human resources strategy in the U.S. market. The strategy focuses on recruiting, training, and hiring workers with disabilities to work alongside non-disabled staff throughout various areas of hotel operations. Among the groups targeted for employment are individuals with speech, hearing, and vision impairments, orthopaedic disabilities (i.e., amputees), and intellectual challenges such as autism and Down syndrome. In recent years, Lemon Tree has expanded its outreach to individuals from economically and socially marginalized sectors of society, including orphans raised in institutions and victims of acid attacks. Today, nearly 20 percent of Lemon Tree’s 5,000-strong workforce is comprised of such “opportunity-deprived individuals,” and the company aims to increase this number to 45 percent by 2025. The case is set in mid-2019. Ms. Aradhana Lal, vice president of sustainability initiatives, is contemplating a conversation she had earlier in the day with the company’s managing director. The executive informed her that he is considering expanding Lemon Tree’s international footprint by entering the U.S. market and wants her advice on whether it is possible to replicate the company’s HR strategy there. Lal finds the idea intriguing yet sees major strategic, financial, and operational challenges. She considers how to respond to her boss. Key words: human resources, disability, inclusion, sustainability, internationalization Introduction: It was not easy to catch Aradhana Lal by surprise. The vice president of sustainability initiatives for Lemon Tree Hotels, India’s largest and fastest-growing mid-market hotel chain was an industry veteran who felt that she had seen it all during her two and a half decades in the industry. However, the conversation she had had earlier in the day with Patanjali (Patu) Keswani, the company’s founder and managing director, had truly caught her off guard. Keswani stopped by her office on the way to lunch and told her he is considering expanding Lemon Tree’s international footprint by entering the U.S. market. That was certainly a stunner. The real surprise, however, was what came next. The boss revealed that he would like to replicate Lemon Tree’s highly lauded HR strategy (Inclusion Program) in the U.S. market and wanted to know whether she thought it was feasible. The idea, he confided, was to open a flagship property in a major city such as New York or Los Angeles that Lemon Tree would lease and manage, and then gradually expand the brand into other American cities. Get back to me within 48 hours he said as he briskly exited her office. Lemon Tree Hotels Lemon Tree Hotels Ltd. is India’s leading mid-market hotel chain and the third largest hotelier overall with 58 properties and 6,000 rooms across 35 cities. The company focuses primarily on the mid-market segment, where it competes with its Lemon Tree Hotels brand, yet it also has a presence in the economy segment with its Red Fox brand, and in the upper mid-market segment with its Lemon Tree Premier brand. Moreover, in 2019, Lemon Tree inaugurated a new upper scale brand -- Aurika Hotels & Resorts -- to compete against the likes of Vivanta by Taj from Indian Hotels Company, Westin from Marriott-Starwood, Courtyard by Marriott, and Crown Plaza from Intercontinental (Baggonkar, 2019). Lemon Tree owns and operates roughly 65 percent of its hotels, although the company’s plans call for more leasing and managing of the properties owned by others in order to remain “asset light” (Kumar, 2018). The New Delhi-based hotel company is the brainchild of Patu Keswani, a former hotel executive with the Taj Group and management consultant with A.T. Kearney. Keswani founded Lemon Tree in 2002 on the hunch that the market for mid-priced hotels was poised to explode, owing to India’s economic dynamism and the growing popularity of business and leisure travel. At the time, India’s hotel industry was bifurcated, with a glut of five-star luxury properties that catered to foreign business people and an abundance of one- and two-star economy lodgings geared to budget- minded travelers. There were few offerings in the middle. Keswani sought to fill this void, while offering customers superior value for the money. “All I wanted to do was build a hotel and give 60% of what a 5-star hotel gives at 30% of the costs,” he stated (Tandon, 2018). Keswani opened his first hotel in 2004 – a 49-room property in the city of Gurgaon, a fast-growing New Delhi satellite. That hotel turned a quick profit, affirming the Lemon Tree managing director’s intuition. Two years later, Lemon Tree received a $75 million investment from private equity firm Warburg Pincus. Flush with capital, the company began building hotels in cities such as New Delhi, Goa, and Pune (Dhir and Sushil, 2019). The company tapped into additional resources in 2012 when it formed a joint venture with Dutch pension fund APG, using those funds to build 35 new hotels. Lemon Tree raised an additional $160 million in March 2018 with an initial public offering and used a portion of those funds to acquire mid-market competitor Keys Hotels (Chaturvedi, 2019). As 2019 drew to a close, Lemon Tree appeared to be in an enviable position. It enjoyed an average occupancy rate of nearly 80 percent at its hotels – some 5 to 10 percent higher than the industry average (Iyer, 2019). Moreover, a shortage of rooms at the national level was driving room prices ever higher and boosting operating margins. The company’s expansion drive, meanwhile, continued apace. Lemon Tree’s executives were particularly excited about the company’s foray into the upper scale market. Its first Aurika property in Udaipur opened its doors in late 2019 to much fanfare and the company aimed to open three others within 24 months, including a signature property in Mumbai that would be among the largest in all of India (Baggonkar, 2019). If things went as planned, by 2021 Lemon Tree’s portfolio would comprise 88 hotels with 8,800 rooms, accounting for roughly 14 percent of India’s inventory (Kumar, 2019). The Inclusion Program A cornerstone of Lemon Tree’s success has been its Inclusion Program, which focuses on recruiting, training, and hiring people with physical and mental disabilities (PWDs) to work alongside non-disabled staff throughout various areas of hotel operations – from housekeeping to hotel reception. The program began almost by chance in 2007, when the company hired two hearing-impaired individuals to work as kitchen helpers. That move led to an emotional meeting between Keswani and the mother of one of the employees. Fighting back tears and clutching an enormous bouquet of flowers, the mother profusely thanked Keswani for giving her child a chance at a “dignified life” and invited him to attend the child’s wedding – a ceremony made possible by his employment. Shortly thereafter, Keswani instructed his executive team to ramp up the program, with a goal of hiring 100 hearing- and speech-impaired workers by 2011 (Kazmin, 2018). Initially, these “differently abled” workers assumed back office roles in the hotels, where direct guest interaction was limited. Over time, however, as the program expanded, workers were given customer-facing roles at reception and in restaurant service. Lemon Tree has received numerous accolades and awards for its Inclusion Program, including the National Award by the President of India for Best Employer of Persons with Disabilities and the Asian Human Capital Award. It is perennially ranked as among the best companies to work for in India (Dhir and Sushil, 2019). While Lemon Tree advertises its commitment to the triple bottom line (i.e., profit, planet, and people), the company insists that its Inclusion Program is neither charity nor corporate social responsibility. Rather, it is an integral part of its business model and a source of competitive advantage. Chief among the benefits is enhanced worker productivity. For example, Lemon Tree reports that its hearing-impaired housekeeping staff are able to clean 3-5 more rooms on average per shift than their non-hearing-impaired co-workers. In the restaurant, meanwhile, hearing-impaired employees are faster to notice customers attempting to attract the server’s attention. Other benefits include increased employee morale and engagement, lower worker turnover (roughly 25 percent per year at Lemon Tree vs. 60 percent industry-wide), and high levels of customer loyalty (Kazmin, 2018). Lemon Tree admits that there are significant costs associated with recruiting and training opportunity-deprived individuals. The entire staff, for example, is required to learn Indian sign language and pass a proficiency test. Additionally, workers without disabilities undergo extensive “sensitization training” to learn how to work effectively with their disabled co-workers. Yet many of these costs, Lemon Tree states, are borne by non-governmental organization (NGO) partners. Diversity and Inclusion: A Growth Industry There has been a major push by global companies in recent years to expand and broaden their diversity and inclusion (D&I) initiatives. Indeed, the Boston Consulting Group surveyed large companies in 14 countries in 2018 and found that 96 to 98 percent of them had D&I programs in place – a significant increase from just five years earlier (Krentz, 2019). There is good reason for the growth of D&I programs. Research shows that corporate D&I leaders not only achieve better financial results than their industry peers, they may experience benefits in the areas of decision making, innovation, talent acquisition and retention (Holger, 2019).

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